SYNAPSES:
Insights Across the Disciplines
ISSN: 3060-4737 Volume 2, Issue 8 IF(Impact Factor) 10.92 / 2024
32
Synapses:
Insights Across the Disciplines
ECONOMIC CRISES AND STRATEGIES FOR OVERCOMING
THEM: THE EXPERIENCES OF SOUTH KOREA AND TURKEY
Elyor Bakhtiyorovich Moyliyev
PhD Lecturer, Department of "International Economics and Management"
University of World Economy and Diplomacy
Contact Phone: +998 94 070 6740
Narzullayeva Maftuna Fayzullo kizi
Master’s Student
University of World Economy and Diplomacy
Email:
maftunanarzullayeva05@gmail.com
Contact Phone: +998 93 635 1405
ANNOTATION
This article analyzes the 1998 financial crisis in South Korea and the 2000s financial
crises in Turkey from a historical and economic perspective, examining their recovery
strategies through a comparative approach. The study evaluates the causes of the crises,
the role of international financial institutions (IMF, World Bank), as well as the
effectiveness of domestic policies and structural reforms. Drawing on practical
experience and international literature, the article highlights the importance of post-crisis
financial stability, institutional reforms, and economic diversification. The findings
provide valuable insights for developing effective strategies to overcome modern
economic crises for developing effective strategies to overcome contemporary economic
crises.
Keywords:
economic crises, financial stability, macroeconomic policy,
globalization process, international financial markets, inflation and deflation, state
economic role, crisis analysis methodology, economic security, structural reforms,
economic growth factors, international economic organizations.
The response of countries to economic crises depends on various factors, including
geographic location, level of development, population’s financial capacity, and currency
stability. Studying such processes is particularly relevant in the cases of South Korea and
Turkey, whose economies are significant globally but show different sensitivities to
crises. South Korea faced severe losses during the 1997–1998 Asian financial crisis, while
Turkey experienced major setbacks during the 2001 banking crisis and the 2018 currency
depreciation. This study analyzes the impact of these crises on welfare, employment,
SYNAPSES:
Insights Across the Disciplines
ISSN: 3060-4737 Volume 2, Issue 8 IF(Impact Factor) 10.92 / 2024
33
Synapses:
Insights Across the Disciplines
social services, and macroeconomic indicators. South Korea’s experience
highlights recovery driven by production and economic factors, whereas Turkey’s case
emphasizes strategic decisions and their outcomes.
The
1997–1998
Financial
Crisis
in
South
Korea
In 1998, South Korea was one of the countries most severely affected by the Asian
financial crisis. This vulnerability was largely due to the economy’s high degree of
integration into international financial systems, the absence of a fully flexible exchange
rate, the heavy reliance of the public sector and large corporations (chaebols) on debt, and
the prevalence of short-term external borrowings
1
.
Between 1994 and 1996, GDP grew rapidly, investment and exports expanded,
unemployment remained around 2%, and public debt accounted for less than 11% of GDP.
However, this growth was largely driven by the chaebols’ excessive leverage. Banks were
also heavily exposed to the financial condition of these conglomerates, making the system
highly susceptible to any financial shock
2
.
By 1997, the crisis caused economic growth to halt sharply. Unemployment rose
from 2.5% to 8.5% in a short period, the national currency depreciated by 33%, and
inflation reached high levels. As a result, the South Korean economy experienced a period
of severe financial instability.
Social_Consequences
As a result of the crisis, millions of South Koreans approached the poverty line. The most
affected group was the low-income population, whose welfare declined sharply. The
middle class also faced financial pressure, forcing many households to reduce
consumption expenditures. Unemployment rose from 2.5% at the end of 1997 to 6.8% in
1998 and reached 8.5% at the beginning of 1999, marking the highest level in the
1
Inhoe Kue “
Social Welfare Reform Since the 1997 Economic Crisis in Korea: Achievement, Limits, and Future Prospects
” 2007
https://onlinelibrary.wiley.com/doi/full/10.1111/j.1753-1411.2007.00003.x
2
The IMF Working Paper titled
"The Korean Financial Crisis of 1997
—
A Strategy of Financial Sector Reform"
by Tomás J. T. Baliño
and Angel Ubide, published in March 1999, provides an in-depth analysis of the causes of the 1997 financial crisis in South
Korea and the subsequent reform strategies implemented to stabilize and revitalize the financial sector.
0
10
20
30
40
Annual Consumer Price Index (CPI) Inflation Rate for South Korea
(Korea, Rep. – KOR)
SYNAPSES:
Insights Across the Disciplines
ISSN: 3060-4737 Volume 2, Issue 8 IF(Impact Factor) 10.92 / 2024
34
Synapses:
Insights Across the Disciplines
country’s history. Young people, women, and temporary workers were the most
affected, leading to increased social tension within the country.
From April 1996, falling semiconductor prices in international markets led to a significant
deterioration in South Korea’s terms of trade. This decline continued through the end of
the year, resulting in a 20% drop compared to the previous year—the largest decline in
trade terms Korea had experienced in the past decade. The following graph illustrates
changes in South Korea’s terms of trade between 1997 and 1998.
The 2001 Economic Crisis in Turkey
A similar situation occurred in 2001 when Turkey faced a severe economic crisis, caused
by weaknesses in domestic financial management, political instability, and problems
within the banking sector.
In February 2001, Turkey experienced one of the deepest economic crises in its history.
As a result, the country’s GDP fell from USD 201.4 billion in 2000 to USD 148 billion in
2001. The crisis was further exacerbated by disagreements between political leaders—the
President and the Prime Minister—and by increasing external pressures on their policy
decisions
3
.
Additional factors that intensified the crisis included excessive debt burdens, a weak
banking sector, lax fiscal discipline, and systemic corruption. During the 1990s, Turkey
had financed budget deficits through short-term external borrowings, mainly domestic
bonds with high interest rates. By the late 1990s, rising interest payments, increasing
budget deficits, a growing public debt-to-GDP ratio, and overreliance on short-term
domestic debt instruments began to destabilize the economy.
3
Based on Fevzi Okumus,
“The Impact of Economic Crisis: Evidence from Turkey”
and Walker, K. (2002),
The Consequences of the
Economic Crisis in Turkey
. Working Paper, 13th Meeting of the EU-Turkey Joint Consultative Committee, Erzurum.
Available at:
https://pmc.ncbi.nlm.nih.gov/articles/PMC7148811/#bib30
0
5
10
C H A N G E S I N T H E U N E M P L O Y M E N T R A T E I N
S O U T H K O R E A
SYNAPSES:
Insights Across the Disciplines
ISSN: 3060-4737 Volume 2, Issue 8 IF(Impact Factor) 10.92 / 2024
35
Synapses:
Insights Across the Disciplines
Total Government Debt (as a Percentage of GDP)
4
Banks had been financing the government through investments in government bonds,
which weakened their connection with the real sector. Although the 2000 exchange rate
stabilization program signed with the IMF aimed to reduce inflation, political conflicts
and internal government disagreements undermined investor confidence. The political
crisis in February 2001 sharply intensified pressures on the financial system, forcing
Turkey to move the national currency, the lira, to a floating exchange rate. These
measures, however, only worsened the situation. Government expenditures increased but
were not fully covered, leading to a further rise in the budget deficit.
Socially, the crisis hit the most vulnerable groups, particularly low-income
households. Rising inflation significantly increased the prices of essential goods, such as
food, medicine, and utilities. As household budgets contracted, funding for healthcare and
education services declined. According to World Bank data, in 2001, real Gross National
Product (GNP) fell by 7.4%, consumer price inflation rose to 54.9%, and the national
currency (Turkish Lira, TL) depreciated by 51% against major foreign currencies
5
.
4
Republic of Turkey Ministry of Treasury and Finance 'Debt Indicators' 2019 Report, page 4
5
Based on reports focusing on the inflation reduction program and the subsequent crisis, see: Akyüz & Boratav (2004); Ertugrul
& Yeldan (2003); Yeldan (2002); Independent Social Scientists Alliance (2006).
0
20
40
60
80
100
120
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
2024
Annual Consumer Price Index (CPI) Inflation Rate for Turkey
SYNAPSES:
Insights Across the Disciplines
ISSN: 3060-4737 Volume 2, Issue 8 IF(Impact Factor) 10.92 / 2024
36
Synapses:
Insights Across the Disciplines
Based on the following table, the characteristics of crises in the two
countries during different periods are analyzed in detail. The table illustrates the
interconnections between the economic and social conditions during each crisis.
Comparative Analysis of the Causes of Economic Crises in South Korea and
Turkey
Table 1
6
Category
South Korea (1997–1998)
Turkey (2001–2018)
Causes of Crisis
- Excessive expansion of
chaebols based on debt- High
level of short-term external
debt- Strict control over
exchange rates- Strong
integration with international
financial systems
- Political instability (President-
Prime Minister conflict)-
Political influence over banks-
Excessive reliance on
government bonds- Programs
implemented with IMF and
foreign banks
Financial
Consequences
- Currency depreciation ≈ 50%-
Decrease in foreign reserves-
Problems with external debt
repayment
- Lira depreciation ≈ 100%-
Decrease in foreign reserves (≈
$7.6 billion USD)- Sharp
increase in exchange rate
Macroeconomic
Indicators
- GDP growth in 1998: -5.8%-
Unemployment: 2.1% → 8.5%-
Inflation: 7.5%
- GDP growth in 2001: -5.7%-
Unemployment: 6.5% →
10.6%- Inflation: 52.5%
Social
Consequences
- Middle-class income pressure
increased- Youth employment
sharply decreased- Small
enterprises closed-
Expenditures for education and
healthcare decreased
- Real incomes sharply
decreased- Poverty increased-
More than 20 banks liquidated-
Informal employment
increased, regional inequalities
intensified
Banking Sector
- Direct link between chaebols
and financial institutions- Risk
concentration in credit and
securities
- Political interference in major
banks- More than twenty banks
were closed or taken over by
the state
6
Based on the Author’s Analysis of the IMF Assistance Program
SYNAPSES:
Insights Across the Disciplines
ISSN: 3060-4737 Volume 2, Issue 8 IF(Impact Factor) 10.92 / 2024
37
Synapses:
Insights Across the Disciplines
Crisis Recovery Strategies
South Korea’s recovery from the 1997–1998 Asian financial crisis stands out in the
history of the global economy not only for its speed but also for the depth and breadth of
the reforms implemented. This experience serves as an important model for developing
countries seeking effective crisis exit strategies.
South Korea’s Recovery Strategies:
1.
Cooperation with the IMF
South Korea received USD 58 billion from the IMF and strictly adhered to the
conditions. While this caused short-term social hardships, it was essential for
long-term recovery
7
.
2.
Financial Sector Cleanup
Between 1998 and 2000, the government allocated funds equivalent to 32% of
GDP to restructure the banking system. Non-performing loans were offloaded
through KAMCO, and financial institutions’ capital was strengthened
8
.
3.
Chaebol Reforms
Under the “Five plus Three Principles”
9
program, conglomerates refocused on
core areas, debt guarantees were canceled, and transparency was improved. The
share of independent directors increased from 25% to 50%.
4.
Social Protection
Unemployment insurance coverage expanded from 5.7 million to 8.7 million
workers, and benefit amounts increased. KRW 2.5 trillion was allocated for
public works, and social expenditures rose from 0.6% to 2% of GDP
10
.
5.
Export and Technology Promotion
The export-led growth model was maintained, and technology and IT sectors
were developed, allowing rapid benefits from global economic recovery.
7
Korean Crisis and Recovery
—
Papers Presented at a Conference held in Seoul, Korea May 17-19, 2001 Editors: David T. Coe and
Se-Jik Kim
https://www.imf.org/external/pubs/nft/seminar/2002/korean/
8
“
The Role of KAMCO in Resolving Nonperforming Loans in the Republic of Korea
” prepared by Dong He September 2004 6
-7
betlar IMF
https://www.imf.org/external/pubs/ft/wp/2004/wp04172.pdf?utm
9
Republic of Korea Economic and Policy Developments //
https://www.elibrary.imf.org/view/journals/002/2000/011/article-
10
IMF. (2000).
Korea: Economic and Policy Developments
. IMF Country Report No. 00/11
SYNAPSES:
Insights Across the Disciplines
ISSN: 3060-4737 Volume 2, Issue 8 IF(Impact Factor) 10.92 / 2024
38
Synapses:
Insights Across the Disciplines
Figure:
South Korea GDP
Growth (annual %)
11
This graph illustrates the
changes in GDP trends before,
during, and after the crisis.
Turkey’s Recovery Strategies
Turkey implemented a recovery strategy with its own characteristics while incorporating
additional elements inspired by the South Korean experience.
1.
International Assistance
Turkey received USD 19 billion from the IMF and USD 6.2 billion from the
World Bank. The funds were used to stabilize the banking sector and strengthen
fiscal discipline
12
.
2.
Central Bank Independence
In 2001, the central bank was granted legal independence, and from 2002, an
inflation-targeting policy was introduced. As a result, inflation fell from 70% to
9.3% by 2004
13
.
3.
Bank Sector Restructuring
Through the BRSA and SDIF, 21 banks were brought under supervision and
recapitalized, ensuring the stable functioning of the financial system.
4.
Fiscal Discipline
Government expenditures were reduced, taxes increased, and privatization
accelerated. Consequently, public debt decreased from 74% of GDP to 45%
14
.
5.
Improving the Investment Environment
Bureaucratic barriers were reduced, and the legal framework was strengthened.
Foreign direct investment increased from 0.4% to 3.6% of GDP.
11
https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?locations=KR
12
Based on the IMF press release:
https://www.imf.org/en/News/Articles/2015/09/14/01/49/pr0207
13
Based on World bank press: //
https://data.worldbank.org/indicator/FP.CPI.TOTL.ZG?locations=TR
14
Based on
Foreign direct investment, net inflows
https://data.worldbank.org/indicator/BX.KLT.DINV.WD.GD.ZS?locations=TR
6,170552427
-5,129448165
11,4669424
3
-10
-5
0
5
10
15
20
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
2012
2016
2020
2024
South Korea GDP Growth (annual %)
SYNAPSES:
Insights Across the Disciplines
ISSN: 3060-4737 Volume 2, Issue 8 IF(Impact Factor) 10.92 / 2024
39
Synapses:
Insights Across the Disciplines
Figure:
Turkey GDP Growth
(annual %)
15
This graph illustrates the changes in
GDP trends before, during, and after the
crisis.
Lessons from South Korea and Turkey
The experiences of South Korea and Turkey demonstrate that international assistance
plays an important role in overcoming severe economic crises, but the main
determinant of success is the depth and consistency of domestic reforms. Comparative
analysis of the two countries’ experiences leads to the following conclusions:
—
International cooperation is necessary but not sufficient.
Financial support
from the IMF and other institutions provides short-term stability, but the primary
source of sustainable growth is domestic reform.
—
Prompt and decisive actions are crucial.
Political will and timely decision-
making accelerate the recovery process.
—
A comprehensive approach yields effective results.
Combining macroeconomic
stabilization, financial sector strengthening, structural, and social reforms
simultaneously is essential for crisis recovery.
—
Financial sector reform is a priority.
Restructuring the banking system and
cleansing non-performing assets form the foundation of economic recovery.
—
National characteristics must be considered.
Each country must design
strategies suited to its economic structure and capabilities.
For other countries today, the following recommendations remain relevant: preparing
in advance and creating institutional buffers, strengthening financial system stability,
enhancing social protection measures, diversifying exports, and building effective
state institutions.
15
https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?locations=TUR
6,933239705
-5,750006555
6,447722047
-10
-5
0
5
10
15
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
2012
2016
2020
2024
Turkey GDP Growth (annual %)
SYNAPSES:
Insights Across the Disciplines
ISSN: 3060-4737 Volume 2, Issue 8 IF(Impact Factor) 10.92 / 2024
40
Synapses:
Insights Across the Disciplines
References
1.
Kue, I. (2007).
Social Welfare Reform Since the 1997 Economic Crisis in Korea:
Achievement, Limits, and Future Prospects.
Retrieved from
https://onlinelibrary.wiley.com/doi/full/10.1111/j.1753-1411.2007.00003.x
2.
Baliño, T. J. T., & Ubide, A. (1999).
The Korean Financial Crisis of 1997—A
Strategy of Financial Sector Reform.
IMF Working Paper, March 1999.
3.
Okumus, F. (2003).
The Impact of Economic Crisis: Evidence from Turkey.
In
Walker, K. (2002),
The Consequences of the Economic Crisis in Turkey.
Working
Paper, 13th Meeting of the EU-Turkey Joint Consultative Committee, Erzurum.
Retrieved from
https://pmc.ncbi.nlm.nih.gov/articles/PMC7148811/#bib30
4.
Republic of Turkey Ministry of Treasury and Finance. (2019).
Debt Indicators
(p.
4). Retrieved from
https://ms.hmb.gov.tr/uploads/sites/2/2019/01/DEBT-
5.
Akyüz, Y., & Boratav, K. (2004); Ertugrul, A., & Yeldan, E. (2003); Yeldan, E.
(2002); Independent Social Scientists Alliance. (2006). Reports on inflation
reduction program and subsequent crisis.
6.
Coe, D. T., & Kim, S.-J. (Eds.). (2001, May 17-19).
Korean Crisis and
Recovery—Papers Presented at a Conference held in Seoul, Korea.
Retrieved
from
https://www.imf.org/external/pubs/nft/seminar/2002/korean/
7.
He, D. (2004, September).
The Role of KAMCO in Resolving Nonperforming
Loans in the Republic of Korea
(pp. 6–7). IMF. Retrieved from
https://www.imf.org/external/pubs/ft/wp/2004/wp04172.pdf?utm
8.
IMF. (2000).
Republic of Korea: Economic and Policy Developments.
Retrieved
from
https://www.elibrary.imf.org/view/journals/002/2000/011/article-A001-
9.
IMF. (2000).
Korea: Economic and Policy Developments.
IMF Country Report
No. 00/11.
10.
IMF. (2015).
Press release.
Retrieved from
https://www.imf.org/en/News/Articles/2015/09/14/01/49/pr0207
11.
World Bank.
Foreign direct investment, net inflows.
Retrieved from
https://data.worldbank.org/indicator/BX.KLT.DINV.WD.GD.ZS?locations=TR
